Friday, August 19, 2011

Good profits are the result of value that you generate for your customer. Bad profits are value that you extract from your customer.

Long contract durations, automatic rollovers, and cancellation windows (pay an exorbitant fee if you cancel too early, prolong for a year if you cancel too late) are classic examples of bad profits. Bad products are seductive, because they seem like easy money. But nothing encourages your customers to leave like being shaken down for bad profits. Nothing inhibits your ability to move into a new market like bad profits in your home market. In short, nothing is long-term more dangerous to your profitability than a culture of raking in bad profits.

According to numerous reports, [Six: SCMN] announced that they are eliminating an important source of bad profits - the year-to-year automatic rollover for cell phone contracts. From now on, they have a 60 day notice period once the initial contract length has expired. (And yes, I think it is fair that if they sponsor your telephone, then you should stay with them for a certain period).

Is this move just a tactic, or does it represent a deeper change? Time will tell. We'll have chance at an inside look at how Swisscom thinks when Urs Geiser comes to the Scrum Breakfast in Zürich to talk about the creation of Vivo Casa, Swisscom's Digital TV offering.

What should Swisscom do next? The should take an inventory of their good profits and bad profits. Their good profits should be an example and foundation for the future. And the bad profits? Roaming fees, and especially international data roaming fees, would be high on my list of bad profits. Anything which smells of bad profits should be transformed if possible or simply eliminated.